The United States has been in poor financial state for a while, but few are aware just how bad their situation is. In Europe, budget deficits are measured in comparison to the budget. That means that you measure what percentage of spending comes from borrowing money instead of tax revenue. In the United States, the standard appears to be to measure budget deficits against the size of the GDP. According to that measurement, the USA has a budget deficit around 13-14% for the years 2020 and 2021. If we adjust the federal budget deficit comparison, and compare it to the size of the actual budget spending, we reach a shocking conclusion. The United States has a 42% budget deficit. Nearly half of federal US spending comes from borrowed money.
To place these numbers in perspective, the European Union had a rule that budget deficits need to remain below 3% for countries wishing to join the Eurozone. Countries in the EU have also failed to live up to this expectation, with Spain having a budget deficit of over 10%. That makes it one of the outliers in Europe, because 10% is huge. And yet, it’s nothing in comparison to the budget deficit of the United States.
Of course the United States justifies their erratic spending as being lockdown stimulus. But this amount of deficit spending hasn’t been seen since World War Two, where deficits were pumped up to prepare the military for victory over Germany and Japan. Moreover, lockdown measures have been more relaxed in some US states, than in Europe and other places. Why do they need so much stimulus to keep the economy afloat? And on top of that, the Federal Reserve was already bailing out banks for hundreds of billions of dollars in 2019.
Where does the money the US borrows come from? For a large part, it comes from its own central bank, the Federal Reserve. The Fed has been printing money to buy government bonds, because there are few other buys still interested in bonds. Why would anyone buy bonds when their interest payments are below the inflation rate?
The US economy is bust.